Mars to use Fairtrade-certified cocoa in Mars bars on sale in UK and Ireland

Mars to use Fairtrade-certified cocoa in Mars bars on sale in UK and Ireland

In the fifth part of just-food's management briefing on sustainable sourcing, Ben Cooper examines how consumer demand for certified sustainable cocoa has fostered corporate action to improve the living standards of their agricultural suppliers and make their raw material supply chains more sustainable.

What is driving the push towards more sustainable supply chains? The frequent answer from observers and those within industry is that it is risk, and more specifically risk of supply.

This is certainly true. To say companies have woken up to the risks and are doing something about it is a little unfair. Albeit some with a better record than others, companies have taken stewardship of their agricultural suppliers and their communities seriously for a long time. However, it is fair to say a significantly increased risk element has been a catalyst behind the recent step change.

Cocoa is a particularly good example of how risk is shaping sustainability strategies. The cocoa supply chain is dominated by smallholder producers in Côte d'Ivoire and Ghana and these farmers urgently require investment in order to meet current demand effectively, let alone the anticipated increased future requirements in coming years.

Once again, companies have been active in their cocoa supply chains for years but the last few years have seen a marked increase in that engagement, notably including the launch of CocoaAction last year.
Cocoa typifies many of the major problems in agricultural supply chains that jeopardise a sustainable supply, such as migration away from family farming, degraded environment, a need for investment in new agricultural methods and new tree stock plus, of course, there is a particular and longstanding problem in these countries of child labour - although that issue also arises in many other supply chains.

The child labour issue along with the general poverty of smallholder farmers in the developing world speaks to the reputational risk inherent in food companies' relationships with their agricultural supply chains.

The consumer pull

Reputational risk relates directly to the other primary force acting on companies and prompting the greater focus being paid to their agricultural supply chains, namely consumer sentiment, and the most tangible expression of that demand is the growth of certified labelling schemes, in particular Fairtrade, Utz and Rainforest Alliance.

The role these certified schemes have had in the advancement of sustainability as a priority for companies, and in the improvement that has been seen in farmers' livelihoods in the developing world, cannot be understated.

From their very early days of appearing on niche products targeted at highly environmentally and ethically aware consumers, these labelling programmes have grown significantly and achieved a degree of consumer awareness and penetration in developed markets - such as the UK, the Netherlands, Germany and certain parts of the US - that probably would have exceeded even the most ambitious aspirations of early pioneers.

The growth has been achieved in spite of a constant acknowledgment, not least by Fairtrade strategists themselves, that taking these schemes to scale is the primary and greatest challenge they face.
Fairtrade International reported last year that estimated global retail sales of Fairtrade-certified products reached EUR5.5bn in 2013, up 15% on 2012. Estimated global sales of Fairtrade-certified cocoa in 2013 reached 54,485 metric tonnes, up from 42,714 metric tonnes in 2012. Cocoa, meanwhile, was the fastest growing category for Utz in 2014, registering a 32% rise to reach the equivalent of 9.7 billion 100g chocolate bars.

Accelerated growth in certified labelling programmes over recent years has been made possible by substantial buy-in from big business, underlined in February by Mars' commitment announced to source Fairtrade certified cocoa for all Mars Bars in the UK and Ireland by this autumn. That announcement followed a number of similar moves by companies including Nestle and Mondelez International.

So, Fairtrade, Utz and Rainforest Alliance have been key forces in making major cocoa supply chains more sustainable. The question is, particularly noting the tough challenges facing cocoa supply chains in Côte d'Ivoire and Ghana and growing demand, can they continue to exert this transformational influence? Given their record of considerably exceeding expectations, it might be unwise to doubt their capacity to do so.

Stephen Lord, product officer for cocoa at the UK's Fairtrade Foundation, says the ability of the schemes to build capacity and consumer "hunger" for certified cocoa has been underestimated in the past, and believes it could be "potentially feasible" for the major certification schemes to be able to supply as much as 80% to 85% of the global cocoa supply by 2020.

Lord believes reaching that goal would be dependent on "how quickly the chocolate manufacturers get involved", as it can take one or two years to move a farmer group from conventional to certified production. But encouragingly, he adds "right now, there's time".

Whether the three existing programmes can meet the demand or other means of certification evolve remains to be seen. What is certain is the demand for certified cocoa will be there. Mars said its plans for the Mars Bar this year represent a step towards its goal to source 100% of its cocoa from certified sources by 2020.

Other companies, including Ferrero and Hershey have made similar commitments. Other such commitments are certain to follow as companies seek to keep pace and the general move towards sustainable supply chains continues.

Hershey's progress towards achieving its aim to source 100% third-party-certified sustainable cocoa by 2020 also suggests grounds for optimism.

Jean-Philippe Ake, director of responsible sourcing at Hershey, says by 2016 the company will be able to source enough certified sustainable cocoa "to cover the requirement on a mass balance basis of four of our top five franchises and by 2017 we will be sourcing enough certified sustainable cocoa to cover all five".

On the company's 2020 commitment, Ake adds: "There's been a lot of capacity building in the past few years with all the top three or four recognised bodies. I think a lot of companies that have committed to certification have helped create this capacity so we don't think we will have any major issues in meeting the long-term commitments that we've made."

Interestingly, Hershey only uses the mark of the sustainable labelling schemes it works with on a couple of its upscale niche products, and not on its mainstream brands, and has no plans at the moment to do so. Mars will also only feature the Fairtrade label on the outer packaging of multipacks of the Mars Bar when Fairtrade supply comes on-stream in the autumn.

Ethical consumerism as a maturing market

The undertakings of companies concerning their agricultural supply chains - possibly because of the greater perceived risk factors - are now to a degree driving demand for certified cocoa. The growth in certified sustainable products is both a development story and a consumer marketing one. The former is clearly the more important element, the raison d'etre, but would not be possible without the latter.

Like all consumer markets, however, the ethical market is evolving, maturing and developing. Ultimately, consumer sentiment is, along with the supply risk element, driving companies' sustainability aspirations but it is perhaps happening less directly than in the earlier stages of the development of the ethical market.
Part of the companies' motivation stems from reputational risk and consumer sentiment, and there is still strong public support for companies to address poverty and environmental issues in their supply chains.

However, there may be, as the years progress, less need for this to be linked to a specific label on-pack. Marketing, and in particular communication through social media, can convey what companies are doing and third-party bodies can still provide the guarantee that they are following through on their undertakings.

For its part, the Fairtrade Foundation is not concerned if companies do not use the mark. "Market access" is what matters, says Lord. "We are not upset about it at all in any sense because for us it's about the commitment to Fairtrade and delivering those benefits back to farmers."

Lord also emphasises the importance of certified labelling schemes being versatile in their dealings with purchasing companies in order to take the programme forward. The mass balance concept is arguably the most vivid - and critical - example. Other concepts and variations, such as its Cocoa Sourcing Programme, launched last year, will allow Fairtrade to continue to move forward, he says.

Lord says the traditional Fairtrade mark can continue to "go from strength to strength", but expects other options for companies to come on-stream in the future. Certification labelling should not be a "one size fits all" system, Lord tells just-food, adding the Fairtrade business had developed in consultation both with the producers and the "market end" of the supply chain, and working with the major companies to derive appropriate ways of structuring models would help Fairtrade to develop and meet growing demand.

Meanwhile, Ignacio Gavilan, sustainability director at the Consumer Goods Forum, believes the drive for sustainable production must move away from a "Eurocentric" approach, essentially focusing on meeting ethical consumer aspirations in developed markets. He says engaging retailers and consumers in emerging markets will be vital for palm oil, but this speaks to the critical role south-south trade must play in creating a truly sustainable global agricultural sector in general.

Multinational corporations make much of the importance of increasingly affluent consumers in emerging markets to their long-term commercial aspirations. Gavilan's observation underlines their critical role in the ethical market too.

Furthermore, there is a circular element to this. Given the importance of agriculture in developing countries, the bid to create viable and prosperous economies and consumer markets in these countries depends to a significant degree on driving more value back along agricultural supply chains.

Such are the problems in cocoa supply chains that greater economic empowerment for many impoverished farmers may only initially mean moving them out of extreme poverty into poverty but in the longer term the aspiration must be to improve living standards to a degree where they become consumers able to exert consumer choice in their own right.

This article is part of just-food's management briefing on the latest developments in the sustainability of supply chains for four key commodities: palm oil, cocoa, soy and sugar.

For more on why there has been a step change in industry engagement on cocoa, click here.

To read why some in the industry believe the drive on sustainable palm oil has been to slow, click here.

Is the debate over genetic modification (GM) plays in the soy sector a distraction from more important sustainability issues around deforestation and its consequences? Click here to read our analysis.

The management briefing also features an interview with Mars on its fund to support smallholder farmers, which was launched alongside Danone earlier this year.